Earnings season ramps up: A massive week for the US stock market

Futures look like crap right now

Yeah. I keep oscillating between being 0% allocated and a little bit negative allocated into the S&P 500. I tiptoed in late morning on Mon., 4/2/18, when the S&P 500 was around 2,597, but then I reversed out of that toehold when my position got clobbered by the "Kudlow Bounce" on Wed., 4/4/18... how undignified, right?

But my thesis doesn't have a lot to do with China trade issues, and interest rates and inflation signals keep ascending higher, so I tiptoed back into a tiny SPXU position last Thursday, 4/19/18, with the S&P 500 at about 2,686. We'll see how it goes.

When the sharp correction occurred back in late Jan. / early Feb., the 10yr UST yield temporarily broke past 2.8%, and the consensus view from Wall Street professionals was, "yeah, that's troubling, but this market can handle higher rates, and our analyses tell us that we won't really start seeing trouble until it breaks past 3.0%." Most also thought (and I don't know why really) that the 10yr yield would not rise beyond 3%, but rather would end the year a little lower.

But wage growth and consumer prices are picking up steam [EDIT: and the current 10yr yield is at 2.96% and rising], and the Fed will not hesitate to kill a rally if it sees inflation during a time of extraordinarily low unemployment rates. So the table is set for the market to be "surprised" by a steeper rate hike schedule.

Bottom line--if the market gets wind of the fact that these nominal increases in corporate revenue numbers are being driven by consumer inflation that the Fed is sure to restrain (rather than real GDP growth, which is still poor), then market sentiment might soon shift very quickly.

I've thought about it, but I don't want to be too exposed to the long-dated end of the yield curve. I expect the near-dated end of the yield curve to go up more steeply than the market is currently predicting, but if real GDP projections decline, then I could easily picture a situation where we also get an inverting yield curve bringing down the yields on long-dated Treasuries as investors move out of equities.

Of course, I suppose I could also make a short play on a shorter-maturity bond ETF like SHV, but I think I might risk losing a little focus if I did that. Best to keep it simple when possible.

Futures have turned positive. Implied open about +70 on the DJ.

Why do you think a 3% 10yr will kill the market? Sure rates are rising and giving more attractive conservative options but the Fed is by no means tight. Rates are still below historical averages.

The fed funds needs rate needs to eclipse GDP growth IMO for us to see trouble.

Bonds are the real overvalued asset:

You pay $33 for $1 of 10YR bond interest.
Or
You pay $20 for $1 of S&P earnings.

On almost every other valuation measure we are overvalued, but often is that case in late stage bull markets.

quote:

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You pay $33 for $1 of 10YR bond interest.
Or
You pay $20 for $1 of S&P earnings.

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To Omada's point, you pay to be first in line...

quote:

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To Omada's point, you pay to be first in line...

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I get that in full. The relative valuation argument is less dramatic now that rates have come up, but not too long ago this was a much bigger gap. Bonds here are not as overvalued as they were.

With that said I’m far more comfortable owning companies with sustained revenue and EPS growth who are paying a respectable dividend.

I’ll always have some treasury exposure but I’m not selling my 2% dividend payers for 3% corporate bonds while those same companies are beating EPS estimates left and right.

I don’t think of risk defined as volatility, even though that is how it’s traditionally described. I would consider the relative risk in bonds greater than the volatility risk in stocks considering the macro backdrop.

Volatility in stocks will always be greater, obviously, but bonds, year to date, have been a surefire way to destroy principal if not managed appropriately.

Nevermind your short puts lol